Target: ₹740

CMP: ₹999.85

Tata Technologies’ Q2-FY25 earnings call aptly summarises the concerns highlighted in our ‘Know the cycle’ thematic report on automotive ER&D. Management believes the strategic consideration between electric vehicles (EVs) and hybrids led by polarised policy positioning ahead of the US presidential elections, and regulatory concerns related to Chinese OEMs and associated tariff in the Europe is leading to decision-making delay, tapering of demand, and smaller deal sizes as customers are cautious to committing larger, long-term projects.

This likely reflects a shift from accelerated adoption to protectionism and pricing pressure which in-turn could moderate capex intensity, a key rationale for our reduce rating.

Despite challenges in the services business, Tata Technologies believes that stable anchor accounts, traction in the aerospace segment supported by recent Airbus accreditations, ramp-up in BMW and Agratas deals and the strength in education are key growth drivers which could help offset near-term challenges while clarity in automotive business could emerge early next year.

Upside risks to our estimates and rating include EV recovery-led growth in the automotive business which, in turn, could help achieve long-term margin aspiration.

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